EU Urges Nations to Step Up Power, Gas Market Integration

The European Union urged the bloc’s
national governments to step up integration of power and
natural-gas markets in order to reduce energy prices and ensure
secure supplies.

The 27 EU countries need to deliver on their pledge to
implement European legislation, known as the “third package”
and aimed at breaking down national barriers by 2014, the
European Commission, the bloc’s regulator, said in a policy
paper published today in Brussels. Governments should also avoid
premature changes to the design of their power markets through
the introduction of capacity mechanisms, the EU said.

“When it comes to gas and electricity, citizens and
businesses are interested in two things: security of supply at
any time and affordable price,” EU Energy Commissioner Guenther Oettinger said in a statement. “We will best achieve this with
a functioning European energy market.”

The policy paper adopted today will be sent to member
states, the European Parliament and other EU institutions. At
stake is an EU campaign to win energy-policy authority from
national officials that compares with existing European powers
over monetary, antitrust, trade and agriculture matters.

Even 20 months after the deadline, some member states have
not yet introduced domestic rules in line with the EU energy
legislation, the commission said. The EU regulator, which has
the power to sue member states for failing to enact the bloc’s
laws, said it will continue pursuing infringement procedures.

Further Progress

The EU should tolerate no delays in completing the internal
energy market and should push for further progress to accomplish
a cost-effective shift to a low-carbon economy it targets by
2050, according to power industry lobby Eurelectric.

“A quicker implementation of the target models for day-
ahead market coupling, intra-day, balancing and forward markets
is needed to fulfil the ambitions for an integrated European
market by 2014,” it said in an e-mailed statement.

The cornerstone of the EU energy legislation seeks to make
dominant power and gas companies such as Electricite de France
SA and EON SE improve access to transmission networks for
competitors. To that end, EU nations must choose one of three
options: force the dominant companies to sell or spin off the
transmission business; require them to hand over management of
the grid to an independent operator; or oblige them to make the
unit more independent through internal actions.

Market Regulation

Another part of the third package established the Agency
for the Cooperation of Energy Regulators, or ACER, to oversee
national authorities and transmission-system operators, advise
European regulators on market regulation and decide on cross-
border issues.

A third part created a “European Network of Transmission
System Operators,” or ENTSO, for electricity and gas whose task
is to develop codes for matters such as grid access, congestion
management, interoperability and transparency.

“Prices set by state intervention do not provide consumers
with the best deal,” according to the commission. “They risk
giving a false impression of protection that de-incentivizes
them from actively exploring better options, including energy
efficiency services. Furthermore, regulated end-user prices
impede investments.”

Back-Up Plants

The EU regulatory arm also said that a premature move to a
system that rewards utilities for running back-up plants when
renewable power is insufficient risks fragmentation of the
internal market and may hinder investments. Systems that reward
availability as well as generation are known as capacity
markets.

“Before introducing such mechanisms member states should
analyze whether there is a lack of investment in generation and
why,” the commission said. “Before member states intervene in
the market on a national basis, cross-border solutions should be
considered.”

European countries including Germany and the U.K. are
considering how to ensure there is enough round-the-clock power
output to meet demand as nuclear reactors are being phased out
or renewables generation falls short. One alternative is
capacity mechanisms that allow utilities to fix prices for
guaranteeing backup power supply in advance.

Capacity mechanisms could be used only if “market
distortions preventing the functioning of energy-only markets
are previously addressed and if their design carefully assess
their potential interference in implementing the internal energy
market,” gas sector association Eurogas said in a statement.